adr international Procurement consultants

The supplier visit - an indispensable tool

Meeting your suppliers on their own premises is crucial in uncertain times – but for best results you need to know how to go about it, says Bill Michels

As the global economy shows signs of recovery, your company may be healthy enough to start ramping up production, but do you know if all your critical suppliers are as ready as you are? Suppliers are suffering from extended terms and an inability to achieve bank financing. Layoffs also have reduced the experience of their workforce. These deteriorations have impacted suppliers across the supply chain. They are not willing to discuss these business issues with key customers out of fear such discussions will lead to additional cuts in volume.

Sometimes the only way to validate the soundness of your supply base is to make a formal, structured visit to suppliers. It’s tempting to dismiss these visits as a discretionary expenditure, but nothing could be further from the truth.

To make a supplier visit pay off, it is necessary to plan an agenda for the visit and a detailed set of questions or areas of inquiry, so the supplier can be well prepared. A walk around the plant floor is a good start. It may reveal low utilisation of capacity, low stocks of raw materials and work-in-progress, low levels of inventories, and outages of stock. These observations can be symptoms of bigger problems. 

It is also necessary to have a detailed discussion mapping the supplier’s own supply chain and the vulnerabilities that the supplier has identified in it. Many suppliers will focus on their immediate vendors and nothing below. Your supplier should provide detailed steps it is prepared to take in the event of a disruption anywhere in its own supply chain.

It is also fair to ask your most strategic suppliers to open some of their financial records to you. There is little doubt that when end customers are stretching payment terms to 120 days or more, the weaker links in the beginning of the supply chain will struggle to finance their working capital. Those may be small businesses, not well capitalised and verging on bankruptcy. 

Every visit to a supplier should include an assessment of quality. When cash is short and losses loom, it should not surprise anyone if suppliers start to cut corners that degrade product quality or reliability.

If you consider your suppliers as extensions of your own business you will come to expect them to bring you innovation and continuous improvements. Those may be hard to come by as R&D budgets have suffered. Your approach and the help you offer during a supplier visit may determine if your relationship is one they want to support. Suppliers will respond better to those customers with whom they have strong relationships. This is especially true for low-cost country sources. Your most critical strategic suppliers need attention, monitoring and compliance. 

As we move forward in evolving supply chains, the leanest, competitive, integrated supply chains will offer competitive advantage. These are not built without considerable effort and supplier visits are essential parts of the process.

Bill Michels is CEO of ADR North America LLC, Ann Arbor, Michigan, a consulting firm specialising in global supply chain management

Download PDF here